Reinsurance pricing trends for property and casualty (P&C) lines appear to have slowed over 2Q18, with mid-year renewals modestly weaker than at January 1 and rates ranging from flat-to-down to modest increases for most lines, according to analysts.
Keefe, Bruyette & Woods (KBW) noted that pricing trends were mixed overall, with most commercial lines expected to strengthen unsteadily over 2H18, deceleration in personal auto lines, and downward movement for most of the permanently overcapitalised property lines.
Many believed P&C rates would rise further at the mid-year renewals as the more heavily loss-impacted Florida insurers came to market, but analysts at JMP observed that such growth has not materialised.
JMP claimed that insurance-linked securities (ILS), or alternative reinsurance capital was responsible for this miscalculation, as its rapid and sizeable reload, particularly from newer vehicles, exceeded expectations and even resulted in additional capital entering the market.
Nevertheless, the scarcity of major catastrophe events over 2Q18 beyond a few pockets of adverse weather in Canada and the mid-West U.S will boost re/insurers underwriting profits, and most primary insurers are expected to report roughly flat catastrophe losses y/y.
Global insured catastrophe losses totalled about $9.1 billion over the second quarter of 2018, say analysts.
KBW predicted that current loss trends will mostly depress reserve releases, with individual companies’ development ranging from modestly smaller releases y/y to potentially significant strengthening.
Additionally, most property reinsurers’ reserve development will likely be affected by Hurricane Irma loss creep, with ISO’s Property Claims Service calculating that the original $18 billion insured loss estimate has already risen by 8%.
Re/insurers will also benefit from mostly-rising interest rates, which will positively contribute to current- and future-period investment income, outweighing modest book value headwinds.
JMP said it expects re/insurers with shorter portfolio durations to be relative beneficiaries in the near term, when negative book value impacts should be less severe, suggesting that investment income recovery will occur more quickly than for peers with longer durations.